As 2014 gently draws to a close, it’s worthwhile to review several of the dynamics that drove the market for commercial real estate in 2014 and most likely will continue to impact the sector in 2015.

December 29th, 2014

Looking Back on 2014

As 2014 gently draws to a close, it’s worthwhile to review several of the dynamics that drove the market for commercial real estate in 2014 and most likely will continue to impact the sector in 2015.

* Interest Rates-Most forecasters predicted interest rates would rise in 2014. They didn’t, which was good news for the real estate sector! Lender underwriting standards remained cautious for 2014 but quality projects were able to get funded at very attractive rates. We expect rates to rise modestly and slowly in 2015 as the economy in general continues to motor upward and the employment picture improves.

* Multifamily Development Rules-We expect to see continued growth in the multifamily development sector. Single family housing starts remained a drag on the economy in spite of low interest rates, stable pricing and a pipeline full of potential buyers. In November, housing starts were down 7% from a year ago while new multifamily developments are booming in almost all markets!

* Oil Prices Impact Everything- The surprisingly steep decline in the price of oil has been a boon for all sectors of the economy not related to the production of energy. Every one cent drop in the price of gasoline produces $1,000,000,000 in savings to ordinary consumers and significant savings to other segments of the economy that are energy driven. The increase in household disposable income resulting from lower energy costs will continue to be a powerful catalyst to improving the general domestic economy in 2015.

* Strong Domestic Growth-We expect the US economy to continue to improve in 2015. A strong and vibrant economy will tend to “lift all boats”, including all asset classes of commercial real estate. Rising employment, coupled with increased consumer spending and still low interest rates will have a positive effect on the entire real estate sector in 2015. The US economy is still the envy of the rest of the world and very much the safe haven for foreign real estate investors.

2014 has proven itself to be a very good, if uneven at times, year for those of us in the commercial real state business. Surprising events, both domestic and international, threw the marketplace a curve ball every now and again but the market’s momentum shrugged these events off and continued to improve. There will be other, as yet unforeseen, surprises ahead for us in 2015 but we remain confident that the commercial real estate market will create additional value and opportunity for our clients.

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